Editorial | China move on audit ‘secrets’ will pay off
- Hong Kong deal over access to papers will both assist in city investigations and raise the standing of mainland firms in the eyes of finance world
To grow Hong Kong’s standing as one of Asia’s leading stock markets, regulators must strive to attract companies while maintaining a level playing field for investors.
In practice that means Hong Kong Exchanges and Clearing goes all out to welcome listings, while the market watchdog Securities and Futures Commission cracks down on errant investment banks and companies.
Their efforts are complementary but, especially in the case of mainland companies that operate under a different regulatory system, they can still be frustrated by misleading or incomplete information or a simple lack of access to it.
In an example of the latter the SFC fought with accounting firm EY for five years before a Hong Kong court gave it access to the auditor’s working paper of its mainland clients in 2015.
The sticking point – Chinese laws that define audit papers as state secrets that cannot be taken out of the mainland. This breaks a paper trail fundamental to audit investigations.
In a breakthrough, Hong Kong’s regulator of auditors for listed companies, the Financial Reporting Council, has reached a deal for access to these “secrets” that could make an immediate difference to nine current investigations.